New Year – Same Issues

Econ 101 - A Shortage of Supply
  • As we have discussed previously, Texas cities have a huge need for affordable housing.
  • But it is very difficult for developers to cost effectively build affordable housing.
  • Local municipalities, therefore, need to use a variety of incentives to make it more achievable for developers.

Happy New Year. I hope everyone had a great new year and a fun time with friends and family. A new year is always somewhat exciting, regardless of how old you are. Its like the start of a new baseball season – it provides hope that this is the year we get everything we want. And that the Detroit Tigers are going to win the World Series.

I am, therefore, excited for 2023. And hope you are too. I’m excited to work on interesting and unique projects and to generally help build a better Texas.

When I was searching for article ideas this weekend, I read a great interview in the Dallas Business Journal about a roundtable discussion* that a Dallas company hosted. It was focused on affordable housing and talked about a lot of the difficulties developers face when trying to build it. And, of course, those issues are not just in Dallas – they are all over Texas. So that’s what we are going to talk about this week.

It is Difficult for Developers to Build Affordable Housing


As written above, the interview in the Dallas Business Journal that came after Innovan Neighborhoods hosted its roundtable is quite interesting. Innovan’s Managing Partner Maggie Parker said that there are a number of hurdles that developers face when trying to build affordable housing. Obviously the revenue from affordable housing is not as significant as market rate housing. So to make it realistic to build, the costs need to be lower.

But that is very difficult right now. Specifically, she said that affordable housing often requires different sources of funding – including from local municipalities. And being able to navigate those funding waters takes knowledge to understand the give and take.

And just getting the government funding often takes a long time. And, of course, the longer it takes the more the cost is driven up.

In addition, construction costs have increased tremendously the last couple of years. And, obviously, that directly increases the cost of building affordable housing. Which, in turn, increases the rental rates that need to be charged.

So while affordable housing is a huge need throughout Texas, its very difficult for developers to be able to afford to build some.

Texas Municipalities Need to Help Subsidize


Regardless of how difficult it is to get affordable housing built, there’s no doubt we need it in Texas. As we discussed in previous weeks, we just had an election here in Austin that turned over a lot of City Council seats. And the new councilmembers seem to be pro-housing. That gives me hope that we will see some positive movement in affordable housing the next two years.

We hope that Austin – and other municipalities – will work with developers to make it more palatable to build affordable housing. This includes the City potentially using a few different tools:

  • Low cost money – Through bond issuances or whatever means it has, make low-cost debt available to developers specifically to develop affordable housing.
  • Public-Private Partnerships – Work with big companies and developers to come up with novel solutions to build more housing.
  • Support groups like HACA – Make more money available to groups like HACA so they can build and renovate to provide more housing.
  • Streamline permitting processes – Work with the city manager to streamline the permitting process to drastically cut down the time it takes to get approval for developments.

These are just a few of the areas where the City can step up and work with developers to build more affordable housing. And with these initiatives, what is now a cost-prohibitive venture can become a risk that makes sense.




*I am putting together a roundtable luncheon with Central Texas thought leaders for the near future. If you would like to be included, please let me know.

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